rural and regional services and development committee · the committee should have regard to other...

Rural and Regional Services and Development Committee

Members Ben Hardman MP, Seymour – Chair Craig Ingram MP, Gippsland East – Deputy Chair Michael Crutchfield MP, South Barwon John McQuilten MLC, Ballarat Province Robert Mitchell MLC, Central Highlands Province Denis Napthine MP, South-West Coast Peter Walsh MP, Swan Hill

Staff Kristen Murray – Executive Officer

Vaughn Koops – Research Officer

Kate Murray – Office Manager

Address Level 8, 35 Spring Street Melbourne Vic 3000

Telephone 1300 787 202 (Victoria only) 03 9651 3580

Facsimile 03 9651 3691

Email [email protected]

Website www.parliament.vic.gov.au/rrsdc

June 2004

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Terms of reference The Lieutenant-Governor as the Governor’s deputy, with the advice of the Executive Council, under section 4F of the Parliamentary Committees Act 1968, requests that the Rural and Regional Services and Development Committee of Parliament: Inquire into, consider and report to Parliament on: The potential benefits to Victorian regional businesses from improved access to telecommunications infrastructure and services, in particular broadband infrastructure and services, and highlight any impediments that may stop businesses realising this potential. To this end, the Committee should consider the core issues of the:

1. current availability of telecommunication services at affordable prices for businesses in Victorian regional areas;

2. current availability of adequate telecommunications infrastructure for businesses in Victorian regional areas;

3. current level of competition in both the retail and wholesale telecommunications markets in Victorian regional areas;

4. current level of utilisation of available telecommunication infrastructure in regional Victoria;

5. effect that competition, in both the retail and wholesale telecommunications markets, has on the provision of telecommunication services to businesses in Victorian regional areas; and

6. effect that the current regulatory environment has on competition, in both the retail and wholesale telecommunications markets, in Victorian regional areas;

To make recommendations on any necessary or desirable actions that could be taken to assist Victorian regional businesses to be able to take advantage of any benefits from improved access to telecommunications infrastructure and services that may be identified. The Committee should have regard to other reports that examine this matter in Victoria and other jurisdictions as well as on a national level and in particular:

1. The Telecommunications Services Inquiry 2000 (Besley);

2. The Regional Telecommunications Inquiry 2002 (Estens); and

3. “Australia’s Broadband Connectivity” 2003 (Broadband Advisory Group). This Inquiry has been proposed to examine the above matters with a focus on identifying growth opportunities for Victorian regional businesses through improving access to telecommunication services and infrastructure by improving the Victorian regional telecommunication market environment. Dated: 3 June 2003 Responsible Minister: Steve Bracks Signed Premier Acting Clerk of the Executive Council

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The Inquiry and the Discussion Paper This discussion paper was commissioned by the Rural and Regional Services and Development Committee to stimulate discussion and to assist interested individuals and organisations to make submissions to the Committee’s Inquiry on Regional Telecommunications Infrastructure for Business. The contents of the discussion paper do not represent the views of the Rural and Regional Services and Development Committee. The inquiry will consider potential benefits to Victorian regional businesses from improved access to telecommunications infrastructure and services, in particular broadband infrastructure and services, and highlight any impediments that may prevent businesses realising this potential. An electronic version of this discussion paper is available on the Committee’s website at www.parliament.vic.gov.au/rrsdc. Links to the reports listed in the terms of reference are also available on the Committee’s website.

Making a submission The Committee invites written submissions from individuals and organisations addressing some or all of the terms of reference (listed on the previous page). All Victorians with an interest in telecommunications in rural and regional Victoria – including farmers and other small business people, telecommunications carriers, internet service providers, small business and industry groups, federal and state government agencies, local government authorities and community and consumer groups – are encouraged to make a submission. There is no set format for submissions. Your contribution can take the form of a letter, short briefing paper or a longer research document that provides information and/or recommendations relevant to the inquiry. Please sign your submission on behalf of yourself or the organisation you are representing. If possible please also provide an electronic file copy via email or on disk. All submissions are treated as public documents unless confidentiality is requested and granted. The closing date for submissions is Friday 17 September 2004.

The inquiry timetable After submissions close, the Committee will hold public hearings throughout Victoria to take further evidence. The Committee will use evidence obtained through submissions, public hearings and its own research to prepare a report to Parliament. This report will contain findings and recommendations to government.

Contact details Address for submissions: The Executive Officer Rural and Regional Services and Development Committee Level 8, 35 Spring Street MELBOURNE VIC 3000 [email protected] For more information, including a more detailed guide to making a submission, phone 1300 787 202 (Victoria only) or 03 9651 3580, email [email protected], or visit our website at www.parliament.vic.gov.au/rrsdc.

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Chair’s Forward I have great pleasure in presenting a discussion paper prepared as part of the Rural and Regional Services and Development Committee’s inquiry into regional telecommunications infrastructure for business. The purpose of this discussion paper is to encourage all Victorians with an interest in the availability and quality of telecommunications services in rural and regional Victoria to make a submission to this Inquiry.

In July 2003 the Committee was asked by the Governor-in-Council to investigate and report to Parliament on regional telecommunications infrastructure for business. The terms of reference for this inquiry can be found on page ii. The main purpose of this inquiry is to identify how improved access to telecommunications services would benefit businesses in rural and regional Victoria and discover what barriers may prevent businesses from realising these benefits.

This inquiry is wide-ranging. It will consider the availability and quality of telecommunications infrastructure, as well as fixed telephone services, mobile telephones and internet services. However, the terms of reference are particularly focused on regional businesses’ access to and use of broadband infrastructure and services. E-commerce – the exchange of goods and services via the internet – is a gateway for Victorian businesses to compete in national and international markets. Access to broadband is vital to ensure the continued growth of rural and regional businesses, as it offers users fast, ‘always-on’ online access to internet applications and services. In order to provide a context for the inquiry, the Committee commissioned ACIL Tasman to prepare this discussion paper. As such, the discussion paper does not represent the views of the Committee. After considering the Committee’s terms of reference and available evidence, ACIL Tasman identified four key issues for consideration. These are:

• the availability of quality telecommunications services in regional Victoria; • the price of fixed telephone, mobile and broadband services for businesses in regional

Victoria; • the degree of competition in regional telecommunications markets; and • what action government can take to further facilitate development of regional

telecommunications markets. Using these four themes, ACIL Tasman also prepared a list of questions to stimulate debate and guide responses. These are included at the beginning of the discussion paper.

The Committee encourages all Victorians with an interest in telecommunications in rural and regional Victoria – including farmers and other small business people, telecommunications carriers, internet service providers, small business and industry groups, federal and state government agencies, local government authorities and community and consumer groups – to write to it in response to the terms of reference. A guide to making submissions is also included with this paper.

You may wish to use this discussion paper when preparing your submission to the inquiry, or you may want to disregard this discussion paper and rely on your own experience. Both approaches are equally valuable to the inquiry, as the Committee intends to hear a broad range of perspectives from all people and organisations with an interest in telecommunications services in rural and regional Victoria.

The Committee recognises that rural and regional communities, including businesses, have played a vital role in driving demand for broadband services in Victoria. The Committee is eager to hear of examples where small businesses have developed innovative projects designed to improve access to

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telecommunications services, either alone or in partnership. The Committee is also interested in learning more about how broadband has assisted rural and regional businesses to enhance business practices and tap into wider markets. While the Committee is interested in positive developments associated with telecommunications, it would also like to hear about constraints that are currently placed on businesses in rural and regional Victoria.

The Committee will use evidence obtained through submissions, public hearings and its own research to prepare a report to Parliament. This report will contain findings and recommendations to government. The Committee welcomes submissions that contain recommendations on how the benefits of broadband and other telecommunications technologies can be made more widely available to people living and working in rural and regional Victoria.

I encourage all Victorians to become involved in this important inquiry. Finally, I would like to thank ACIL Tasman for their work in preparing the discussion paper.

Ben Hardman MP Chair June 2004

Inquiry on Regional Telecommunications

Infrastructure for Business

Discussion Paper

© ACIL Tasman Pty Ltd

This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgment of the source is included. Permission for any more extensive reproduction must be obtained from Kelly Milne at ACIL Tasman on (03) 9600 3144.

Reliance and Disclaimer

The professional analysis and advice in this report has been prepared by ACIL Tasman for the exclusive use of the party or parties to whom it is addressed (the addressee) and for the purposes specified in it. This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without ACIL Tasman’s prior written consent. ACIL Tasman accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee.

In conducting the analysis in this report ACIL Tasman has endeavoured to use what it considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably.

ACIL Tasman shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ACIL Tasman.

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Contents 1 Introduction 6

2 Background 9

3 Issues for review 1 – Availability 14

4 Issues for review 2 – Price 23

5 Issues for review 3 – Competition 27

6 Issues for review 4 – Role of government 33

References 38

Glossary 40

Figures Figure 1 Availability of DSL in the OECD area 11 Figure 2 Broadband subscriptions in OECD countries, June 2003 12 Figure 3 Impact of broadband internet access on small businesses 16 Figure 4 Narrowband small businesses primary reason for lack of

broadband – metro & non-metro regions 16 Figure 5 Victorian broadband coverage 19

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List of Acronyms NOTE: Technical detail on many of these acronyms is provided in the glossary at the back of this paper

ABS Australia Bureau of Statistics

ACA Australian Communications Authority

ACCC Australian Competition and Consumer Commission

ADSL Asymmetrical Digital Subscriber Line

CAN Customer Access Network

CDMA Code Division Multiple Access

CSG Customer Service Guarantee

DSL Digital Subscriber Line

GSM Global System for Mobile Communication

HFC Hybrid Fibre Coaxial

ISDN Integrated Services Digital Network

ISP Internet Service Provider

OECD Organisation of Economic Co-Operation and Development

OTC Overseas Telecommunications Commission

PMG Postmaster-General

PSTN Public Switched Telephone Network

RRSDC Rural and Regional Services and Development Committee

TIO Telecommunications Industry Ombudsman

USO Universal Service Obligation

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Questions for Discussion Question 1 How does the lack of quality telecommunication services affect the

competitiveness of business in rural and regional Victoria? 15 Question 2 What are the benefits of broadband to businesses in rural and

regional Victoria? 17 Question 3 What business opportunities are lost due to a lack of broadband

availability in rural and regional Victoria? 19 Question 4 What are the main deficiencies in the quality of telecommunications

services in rural and regional Victoria? What impact does this have on businesses in rural and regional Victoria? 20

Question 5 What factors constrain investment in technologies that would increase the availability of telecommunications services to businesses in rural and regional Victoria? 22

Question 6 Are there any examples of where regulatory burden or regulatory risk has influenced investment decisions in the telecommunication markets in rural and regional Victoria? 22

Question 7 How does demand for different telecommunication services vary according to price? 23

Question 8 How have higher access and/or service prices affected telecommunications choices and the competitiveness of businesses in rural and regional Victoria? 25

Question 9 How could economies of scale be established in rural areas? 26 Question 10 What prevents telecommunication prices in rural and regional

Victoria from being lower? 26 Question 11 Can, or has, competition delivered outcomes to meet rural and

regional telecommunication needs? 27 Question 12 Are there barriers of entry or exit to the telecommunications

markets? What impact does this have on telecommunications infrastructure investment in rural and regional Victoria? 28

Question 13 To what extent are buyers and sellers in the telecommunications markets of rural and regional Victoria price setters or price takers? 29

Question 14 To what extent is the development of key innovations evident in the telecommunication markets of rural and regional Victoria? 29

Question 15 Are there barriers to innovation and the implementation of new technologies in rural and regional Victoria? How could these barriers be overcome? 29

Question 16 What has been the impact of open competition in telecommunications on businesses in rural and regional Victoria? 30

Question 17 What are the major impediments to more competitive telecommunication markets in rural and regional Victoria? How could these impediments be overcome? 32

Question 18 What effect does the current regulatory environment have on telecommunication markets in rural and regional Victoria? 35

Question 19 What regulatory changes could be made, if any, to facilitate further development of rural and regional Victorian telecommunication markets? 35

Question 20 Outside of the regulatory environment, what actions should the State Government take to improve access to telecommunications services for businesses in rural and regional Victoria? 37

Discussion Paper

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1 Introduction

1.1 Introduction

The Rural and Regional Services and Development Committee (RRSDC) is a Joint Investigatory Committee of the Parliament of Victoria. The functions of the Committee are to inquire into, consider and report to the Parliament on any proposal, matter or thing concerned with the provision of services to, or the development of, regional Victoria.

On 3 June 2003, the RRSDC was asked to consider and report to Parliament on: The potential benefits to Victorian regional businesses from improved access to telecommunications infrastructure and services, in particular broadband infrastructure and services, and highlight any impediments that may stop businesses realising this potential.

The core issues to be considered include infrastructure and service availability, pricing, competition and the appropriate role of the state.

The purpose of this paper is to identify and discuss relevant issues in the telecommunications industry as they apply to businesses in rural and regional Victoria. This discussion paper has been prepared to provide information to assist interested people and organisations to make public submissions to this inquiry. The aim of this paper is to prompt discussion by highlighting key issues and raising questions, rather than by providing answers or solutions. It has also been prepared to encourage a wide range of people to participate in this inquiry, and for this reason readers’ familiarity with the telecommunications industry has not been assumed.

This paper begins with a discussion of the history of telecommunications in rural and regional Victoria, the current inquiry process, and, for the benefit of readers not familiar with technical aspects of the telecommunications industry, a short summary of the major technologies under review.

This paper then discusses four key issues arising from the terms of reference. These are: • infrastructure and service availability; • pricing; • competition; and • the appropriate role of the state.

Questions arising from discussion of these issues are posed throughout the paper in order to assist and guide the content of submissions to this inquiry.

1.2 Technology overview

Although the terms of reference for this inquiry consider all telecommunication services – including voice, data and mobile services and the infrastructure that these

Purpose of discussion paper

Structure of paper

Inquiry on Regional Telecommunications Infrastructure for Business

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services require – a major focus of this paper is on the provision and adequacy of broadband internet services in rural and regional Victoria. This section provides a brief summary of the major technologies under review.

The traditional definition of a fixed line telephone is a device within a communication system that transmits sound (or voice) between distant points. The fixed line telephone converts sound into electrical signals for transmission over optical fibre cables, and similarly, converts signals received from those cables back into sound. The fixed line telephone network is called the Public Switched Telephone Network (PSTN).

The PSTN is often sectioned into backbone and access networks. Access networks are comprised of the cables that connect customers to their local exchange. These networks are also known as the ‘local loop’ or the ‘customer access network’ (CAN), and largely consist of copper wires. The backbone network is predominantly comprised of optical fibre cables, which connect exchanges within and between cities and states.

Mobile telephones use a cellular network, and are commonly known as ‘cell phones’. The term ‘cell phone’ applies specifically to mobile phones which use a cellular network. A cell phone is a portable telephone which receives or sends messages through a ‘cell’ site, base station or transmitting tower. Radio waves are used to transfer signals to and from the cell phone. Almost all mobile phones use cellular technology, including GSM, CDMA and analogue (now a superseded technology in Australia). Satellite phones are also mobile phones, but they do not operate on a cellular network.

The internet is a publicly available and internationally interconnected system of computers, used to facilitate data transmission and exchange. Although many terms are in use to describe the speed of network connections, the two terms most widely used are narrowband and broadband.

Dial-up access is the major example of narrowband internet communication. Dial-up is a form of internet access in which the client uses a modem to dial a server to establish a modem-to-modem link, which is then routed to the internet.

A broadband medium is one that permits higher-capacity (faster) communication links than is possible through narrowband. Broadband connections are able to operate though an increasing range of technologies, although the most common in rural and regional Victoria are DSL, Hybrid Fibre Coaxial (HFC) cable, satellite and wireless.

Digital Subscriber Line (or loop) (DSL) refers to a group of technologies that provide a digital connection over the copper wires of traditional fixed line telephone networks, at speeds much faster than conventional modems. Asymmetric Digital Subscriber Line (ADSL) is the most common form of DSL, characterised by data flow that is faster in one direction than the other.

Fixed line telephone

Mobile telephone (cellular mobile)

Networks and the internet

Narrowband

Broadband

DSL and ADSL

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HFC cable internet uses high-capacity pay television infrastructures to deliver fast, two-way internet access to areas covered by the network. It is more common in metropolitan areas where cable has been laid to provide for Pay TV services, rather than in rural and regional areas.

Wireless internet access, as the name suggests, provides for access to the internet without wires. Instead of using a phone line or cable to hook onto the internet, one of many popular wireless technologies are used, using radio waves as a carrier from a fixed base station.

Satellite internet uses a radio relay station in orbit above the Earth that receives, amplifies and redirects radio communications signals. Satellite technology can be used for both backbone and local access networks, even though it is not yet widely used for backbone networks.

HFC cable

Wireless

Satellite


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2 Background

2.1 Technological history of Victorian telecommunications NOTE: The history of the government’s role in Victorian telecommunications is covered in Section 6.1

In 1854 the Melbourne to Williamstown telegraph line heralded the beginning of the telecommunications industry in Victoria (Caslon, 2003). By 1859 Melbourne had been linked by telegraph to Sydney and Adelaide. By the mid 1860s all regional centres in south eastern Australia had become part of an expanding telecommunications network (ABS, 2001). Various other telegraph links were constructed between and within other colonies, and in 1872 the Overland Telegraph Line opened, connecting Australian telecommunications with Asia and, by extension, Europe and America (Caslon, 2003).

Australia’s first telephone service began operation in Melbourne in 1879, and Melbourne’s first telephone exchange opened shortly after in 1880. Melbourne and Sydney telephones were connected by a trunk line in 1907, with connections to Adelaide, Brisbane, Perth and Hobart established in 1914, 1923, 1930 and 1935 respectively (Caslon, 2003).

Coverage was gradually extended to increasing numbers of Australians until 1987, when all areas of Australia had basic telephone services, regardless of how remote they were. A key development that enabled ubiquitous coverage was the launch of Australia’s first geostationary communications satellite by AUSSAT in 1985 (ABS, 2001).

Until the 1960s telecommunications infrastructure had been designed to meet demand for the transmission of telegraphic and voice traffic, rather than digital data. However, as popularity of the mainframe computer grew throughout the 1960s, so did demand for domestic and international data exchange. The Datel service, launched in 1969, featured modems for transmission of data at low speeds over voice quality lines on a dial-up basis, or at higher speeds over dedicated lines that had better performance characteristics but were only available between a few points (Caslon, 2003).

Australia’s first commercial Internet Service Provider (ISP) opened for business in 1992, and by 1993 internet addresses were widely available to the Australian public (ABS, 2001). Throughout the 1990s technological improvements, such as the widespread deployment of ISDN, fibre optics, DSL and wireless, allowed increased network bandwidth, and by the turn of the century the term ‘broadband’ was in popular use. By 2000, optic fibre cable supported around 95 percent of Australia’s backbone network1 (Axiss Australia, 2000).

Further technological improvements occurred during the 1980s and 1990s through the introduction of fibre optics, mobile phones, wireless broadband, DSL and laser 1 Backbone network - trunk or inter-exchange telecommunications network.

The telegraph

The telephone

Ubiquitous telephone coverage

Emergence of networks

The internet

Discussion Paper

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technologies (BIS Shrapnel, 2001, p.12). The number of mobile phone providers in Australia increased dramatically following deregulation of the telecommunications industry in the 1990s, as did the standard of technology (Caslon, 2003).

Although the basic landline is the telecommunications service used by most Australians, the proliferation of new technologies has been embraced by Australian users. In its consideration of the telecommunications industry, the Estens Inquiry concluded that “the overall picture which emerges [of Australian telecommunications] is thus of increasingly diverse supply and demand in a more competitive and changeable environment” (Commonwealth Department of Communications, Information Technology and the Arts, 2002, p.19).

2.2 The Inquiry on Regional Telecommunications Infrastructure for Business

The Inquiry on Regional Telecommunications Infrastructure for Business was referred to the Rural and Regional Services and Development Committee by the Governor-in-Council on 3 June 2003. The Committee has been asked to report to Parliament on a range of issues concerning the provision and development of telecommunications services for businesses in rural and regional Victoria. This discussion paper is designed to stimulate input to the Committee’s inquiry through written submissions. The Committee will also hold public hearings and undertake inspections, as well as conduct its own research. The Committee will consider the arguments, evidence and data it has gathered to prepare a report to Parliament containing findings and recommendations.

2.3 A standard for comparison – telecommunication in rural and regional areas of other states and countries

It is important to have a standard to compare rural and regional Victoria against when considering issues such as availability, price, quality and level of competition. For example, we may look at a rural town and conclude that only one or two broadband providers offering expensive services across only part of the town constitutes ‘poor’ availability, ‘high’ prices and ‘low’ levels of competition. While this conclusion may appear reasonable at first glance, it is also important to recognise that terms such as ‘poor’, ‘high’ and ‘low’ are relative, and their use begs the questions ‘relative to what’ and ‘relative to where’?

A comparison between metropolitan and non-metropolitan Victoria does not necessarily provide a complete picture of availability, price and competition in telecommunications infrastructure in rural and regional Victoria. Many economic constraints to extending telecommunications infrastructure across areas of low population density are identified in this paper; constraints that are not present to the same extent in metropolitan areas. In order gain a better understanding of telecommunications services in rural and regional Victoria, it is also useful to have a feel for the situation in other developed economies.


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Australia lags behind a number of OECD countries in terms of availability of broadband services. According to the OECD (2003), by 2002 DSL broadband (the mainstream non-satellite broadband option for non-metropolitan regions) was available to over 90 percent of the populations of Belgium, Denmark, Switzerland and Germany, significantly more than the figure reported for Australia at the same time. Or, put another way, over 25 percent of Australians, largely from the rural and regional areas with the lowest population density, were missing out on broadband services, compared to less than 10 percent of people in those European nations.

Figure 1 Availability of DSL in the OECD area

An important distinction needs to be drawn between broadband availability and take up. Availability is very much an issue of supply, and whether necessary broadband infrastructure is in place or not, whereas take up considers whether households or businesses adopt available services and become subscribers. For a household or business to take up broadband, two conditions must be satisfied:

1. the service must be available; and

2. the household or business must demand the service (at the existing quality and price).

Figure 2 (page 12) shows that broadband has been taken up in varying degrees in most OECD countries. As of June 2003, Australia had a total of 516,800 broadband subscriptions (ACCC, 2003), which represented 2.6 subscribers per 100 population. This is substantially less than the subscription rate of many other developed

Availability of broadband services

Source: OECD, 2003

Note – It is likely that actual DSL coverage in Australia in 2002 was less than the figure reported here (approximately 75%). Australian DSL coverage was probably calculated using coverage maps that rest on the assumption that all of a population living within a DSL enabled telephone exchange area can receive the service, when the technical constraints of DSL generally mean that only a proportion of the population in many DSL enabled exchanges can.

Broadband takeup

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countries, including Australia’s trading partners. For example, by June 2003 there were over 20 subscribers per 100 people in South Korea, almost 13 in Canada, and over 8 in Japan and the United States (OECD, 2003). In fact, the OECD average as of June 2003 was almost 6 subscribers per 100 population, well in excess of the figure for Australia.

By comparison, the equivalent figure for rural and regional Victoria as of June 2003 was estimated to be 1.75 per 100 population, and metropolitan Melbourne 3.23 (ACIL Tasman, 2004).

Figure 2 Broadband subscriptions in OECD countries, June 2003

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Data source: OECD, 2003 <http://www.oecd.org/document/33/0,2340,en_2649_37409_19503969_119656_1_1_37409,00.html>

Part of the reason for low subscription rates in Australia is the lack of suitable pre-existing infrastructure. Many other countries had already laid out cables for technologies such as pay TV, whereas Australia’s pre-existing infrastructure was limited, particularly outside of the capital cities. Adoption of the main existing alternative to cable broadband – DSL – is also low in Australia relative to many other OECD countries, so the low rate of broadband adoption to date cannot be attributed solely to a lack of pre-existing infrastructure. Similarly, Australia’s low population density should not be considered a significant factor in overall take up rates, as the Australian population is among the most urbanised in the world and urban populations may be provided with broadband infrastructure for less cost than rural populations. In regional and remote Australia, however, low population density remains a significant constraint to broadband implementation.

In 2003, the Australian Communications Authority (2003 a) stated that the main reasons for low broadband penetration rates across Australia included: • the limited availability of low-cost broadband access services; • the imposition of monthly data traffic limits and excess data charges (or service

restrictions); and

A lack of pre-existing infrastructure a constraint


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• the relative high base of existing dial-up services.

One characteristic of the Australian broadband market that distinguishes it from other OECD countries is Australia’s increasing dependence on DSL as the broadband technology of choice. In 2001 there were more than three times as many cable broadband subscribers in Australia as DSL subscribers. By the end of 2002, DSL subscribers outnumbered cable subscribers, and latest figures from the ACCC (2003) indicated that DSL subscriptions exceeded cable subscriptions by more than 30 percent. While DSL technology may provide an adequate service to many Australian subscribers, its capacity to cover rural and regional areas is limited, as DSL can only operate within a confined range of DSL-enabled telephone exchanges.2

2 This range is generally considered to be approximately a 4km radial distance from the exchange.

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3 Issues for review 1 – Availability Broadband access is no panacea for isolation … but broadband offers a vital two-way pipeline to the outer world …

(Klinkenborg, 2004)

The concept of availability includes the quality of telecommunications infrastructure and the services that the infrastructure allows. Availability, in its simplest form, refers to the presence or absence of a particular service or piece of infrastructure, or to the extent of coverage in an area. However, availability may also refer to more than just whether the service is present or not. It can also refer to how well infrastructure and services fulfil their intended function. The primary consideration is how well customer demand is met. For this reason, infrastructure quality and service reliability, as well as spatial coverage, should be taken into account when considering availability.

3.1 Why availability is important

Telecommunication services are of great importance to the people, businesses and economies of rural and regional areas. They are a fundamental component of most business in the 21st century, and are vital to the continued expansion of rural economies. The importance of telecommunication services to rural areas was highlighted in a submission to the Estens Inquiry (Eastern Region Area Consultative Committee, 2002) which suggested that “access to modern telecommunications services is vital to residents of rural and remote areas, impacting on the way they live, conduct business and communicate with others”.

Businesses operating in rural and regional areas that lack telecommunication services available to their competitors are at a disadvantage. This is a particular problem for businesses that trade beyond their local area, competing in state, national or international markets. A business lacking access to telecommunication services of comparable quality and price to its competitors must find a competitive edge from some other aspect of its business or risk being uncompetitive. In some cases, regional areas may have a competitive advantage (through lower real estate costs and a loyal labour market, for example), but are limited by telecommunications and other factors. For this reason, the extension of broadband in rural and regional areas may act as a stimulus to rural economies.

This concern was expressed by the City of Greater Shepparton (2002) in a submission to the Estens Inquiry. This submission argues that “to compete effectively in the competitive export, and deregulated national markets … and to attract industry and employment to the region, competitive telecommunications of a quality and comparable price to those available in metropolitan areas is required.”.

The importance of telecommunication services to regions

A lack of telecommunication services can put business at a competitive disadvantage


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Question 1 How does the lack of quality telecommunication services

affect the competitiveness of business in rural and regional Victoria?

The importance of broadband and the advantages it provides to businesses are well documented. Examples include: • Faster internet speeds – while many internet applications can be used through

dial-up access, the slow connection speed makes it very time-consuming to download data. The presence of a broadband internet connection provides access to these applications at much higher speeds. Access to a broadband connection can minimise or remove limitations often experienced with dial-up access while accessing internet pages and downloading data. Labour productivity is enhanced by speeding up tasks that would otherwise be performed using narrowband.

• Encouraging development of new applications – broadband connections encourage users to access the internet more often to make use of existing content. The experience of countries with high broadband penetration, such as South Korea, suggests that high broadband penetration provides an impetus for the development of new services, such as e-commerce.

• Access to broadband in rural and regional areas may also facilitate the use of video conferencing and “telecommuting” technologies, which may also particularly benefit businesses that compete in state, national and international markets.

A recent survey by Pacific Internet (2004) found most small businesses reported increased efficiency and productivity upon adoption of broadband (as illustrated in Figure 3, page 16). Eighty-six percent of respondents regarded broadband as having a positive effect on business efficiency and productivity, with 25 percent of those regarding this effect as ‘extremely significant’. Fifty percent of respondents reported that broadband had a positive effect on the range of supported applications available for their use, and 47 percent reported benefits from reduced operating costs.3

This study also surveyed narrowband users to explore the reasons they had not adopted broadband (Figure 4, page 16). While the numbers of respondents were not large enough to make conclusive findings, the survey did indicate some differences between metropolitan and non-metropolitan narrowband users and the reasons why they have not adopted broadband. The most obvious difference was evident in access to broadband as a reason for non-adoption; with 37 percent of non-metropolitan respondents stating broadband was not available in their area, compared with 17 percent of metropolitan respondents.

3 While the monthly access fee for broadband typically exceeds that of dial-up, there are no

incremental call charges since the internet connection is permanently maintained

The importance of broadband

Barriers to the adoption of broadband

Discussion Paper

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Figure 3 Impact of broadband internet access on small businesses

25%

12% 10%4% 4% 4%

61%

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Extremelysignificant

Note: Results based on broadband small businesses only Data source: Pacific Internet, 20044

Figure 4 Narrowband small businesses primary reason for lack of broadband – metro & non-metro regions

34%

37%

14%

10%

5%

0%

0%

40%

17%

17%

10%

12%

3%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

It is too expensive

Not of fered in our area

Happy w ith dial-upconnection

Don't know enoughabout it yet

No business need for it

Heard too many badthings about it

It is not reliable

Non-metro regions

Metro regions

Data source: Pacific Internet, 2004

Expense was cited by more metropolitan than non-metropolitan businesses as the primary reason why they had not adopted broadband. This may indicate that the perception that broadband cost is the major constraint to adoption is largely driven by metropolitan regions. Trends across the state as a whole mask the availability

4 Based on survey of 224 broadband internet enabled small businesses.


17

constraints facing many businesses in non-metropolitan areas. Another notable divergence in results between metropolitan and non-metropolitan regions is the perception of business need for broadband, with the survey suggesting this is a more significant reason for non adoption in metropolitan areas than non-metropolitan areas.

Many potential benefits of broadband can be undermined if there are few users, as there will be little broadband-specific content to take advantage of. According to Allied Business Intelligence (2001), broadband needs high penetration rates to be successful. Potential customers (beyond the early adopters) demand content, but specific content can only evolve over time if there is sufficient demand for it. This characteristic of interactive media has been recognised for a number of years. For example, in 1990 Markus argued that, in the absence of a sizeable number of initial users, the benefits of an interactive medium are low. Benefits grow as the interactive medium achieves universal access and usage increases. Each new user receives a direct benefit and, by adding to the network, adds to the benefits of some of the existing users. This is known as the network effect.

The implications for rural users are significant: when broadband is made available to them long after it has been made available to other areas, the immediate and absolute productivity gains will tend to be higher upon adoption, as there is likely to be more broadband specific content available to them.

Question 2 What are the benefits of broadband to businesses in rural

and regional Victoria?

3.2 Telecommunication availability in rural and regional Victoria

3.2.1 Spatial considerations

The universal service obligation (USO) is the obligation placed on universal service providers to ensure, among other things, that standard telephone services are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or conduct business. Telstra is currently Australia’s sole universal service provider. By 2001 99.75 percent of Australia’s population had standard telephone services via copper network telephone services, with the remaining 0.25 percent serviced via radio (BIS Shrapnel, 2001).

Although all of Australia can be covered by satellite mobile phone services, there are still gaps in terrestrial (non-satellite) mobile telephone coverage, particularly in areas with significant seasonal populations and in lower density areas between towns. Although Victoria is comparatively better off than many other areas of rural and regional Australia, holes and black spots still exist, even in areas which have largely complete coverage. For example, the Estens Inquiry (Department of Communications, Information Technology and the Arts, 2002) noted how coverage is variable even in urban areas. Factors such as buildings, limitations on the

The network effect with broadband

Fixed line telephones

Mobile telephones

Discussion Paper

18

placement of base stations, traffic flows, and topography lead to temporary and permanent blackspots and resultant drop-outs.

Broadband internet is a technology particularly affected by lack of coverage. There are significant differences in the capability, reliability and price of current broadband technologies. It is also important to distinguish between satellite broadband and other broadband technologies, most notably DSL (of which ADSL is the dominant technology) and HFC cable. Although satellite broadband enjoys almost complete coverage in Victoria, it suffers relative to other broadband options as it is often more expensive with slower speed and less reliability. As such, many of the applications and uses that can be delivered over an ADSL or cable service cannot necessarily be provided over a satellite service, particularly where satellite services are one-way (asymmetrical).

Recent research by ACIL Tasman (2004) estimates that, as of November 2003, approximately 68 percent of the Victorian population can access ADSL broadband, and 51 percent can access cable broadband. 76 percent of the Victorian population and 75 percent of Victorian businesses can access one or the other, or both. This leaves a total of approximately 72,000 Victorian businesses (25 percent of total) and 435,000 households that cannot access broadband services of the quality and price of existing DSL or cable services. As indicated in Figure 5, the vast majority of those businesses are in rural and regional areas. In fact, this study found that while just under 10 percent of metropolitan Melbourne businesses miss out on non-satellite broadband, non-satellite broadband is unavailable to over 57 percent of non-metropolitan businesses. In the North Eastern and Eastern regions of the state, more than 64 percent of businesses are unable to access non-satellite broadband. Rural areas and smaller towns are not the only places to affected. Coverage gaps are even found in larger provincial cities, such as on Melbourne’s urban fringe, as Figure 5 illustrates.

Of the 72,000 businesses that cannot access ADSL or cable broadband, ACIL Tasman (2004) estimate that just over 17,000 would subscribe if they were able to. This number represents unmet business demand. Sectors of the Victorian economy with disproportionately high numbers of business entities (including government) missing out on broadband coverage include those sectors which are major employers in the smaller towns and rural areas, such as ‘Agriculture, Forestry and Fishing’, ‘Accommodation, Cafes and Restaurants’, and ‘Government Administration and Defence’. Sectors with proportionately low numbers missing out on broadband tend to be located in larger urban areas, such as ‘Property and Business Services’, ‘Communication Services’ and ‘Finance and Insurance’.

This study also indicates that the larger the business, the more likely it is to have ADSL or cable coverage. This is because larger businesses tend to be located in larger towns and cities, which, in turn, are more likely to have broadband coverage. In particular, small businesses with fewer than five people are much less likely to have broadband coverage.

Broadband internet

Unmet broadband demand


19

Figure 5 Victorian broadband coverage

NOTE: Map indicative of coverage only. 2001 LGA boundaries. Source: ACIL Tasman, 2004.

Question 3 What business opportunities are lost due to a lack of

broadband availability in rural and regional Victoria?

3.2.2 Quality considerations

The Estens Inquiry into regional telecommunications across Australia (Department of Communications, Information Technology and the Arts, 2002) identified examples where infrastructure is in place, but is so old or of such poor quality that it undermined service availability. This was most notably a problem for fixed line copper networks and some telephone exchanges in isolated areas. This is indicative of poor infrastructure quality. A related issue is service quality, which refers to the quality of service customers receive, independent of infrastructure quality.

In considering the ‘adequacy’ of regional, rural and remote telecommunication services, the Estens Inquiry argued that the concept of adequacy is inherent in the notion of ‘fit for purpose’, meaning that the service is “at a level that enables users to access it readily and use it effectively for the purposes for which it is provided” (2002, p. 19).

Infrastructure quality

What is meant by ‘quality’?

Discussion Paper

20

The report defines services as ‘fit for purpose’ if they are: • provided in a timely way; • of good quality and function well; • generally reliable; and • priced in a way that enables broad access and take-up by regional, rural and

remote consumers.

Question 4 What are the main deficiencies in the quality of

telecommunications services in rural and regional Victoria? What impact does this have on businesses in rural and regional Victoria?

3.3 Potential constraints to greater availability

Although it is desirable for high quality telecommunications services to be made more widely available, there are often constraints which mean availability can not be easily increased, particularly in rural areas. This section identifies some of the constraints to more extensive coverage in rural and regional areas.

3.3.1 Technical constraints

There are often technical issues which are not easy to overcome. For example, some wireless telecommunication technologies require ‘line of sight’ to function, making them inappropriate in mountainous terrain. Similarly, ADSL broadband is not available to those living a significant distance from an ADSL enabled telephone exchange. This technical constraint limits the availability of ADSL to many households and businesses in rural and regional areas.

3.3.2 Quality of existing infrastructure

Much of the copper network in rural areas is aged and of a quality that may undermine service access, particularly to the internet. Although the service may be technically available, it is so unreliable and of such poor quality that it is impractical to use many internet applications. An example may be the use of email or the downloading of large documents, where speed and a regular connection are important. Slow speeds and drop-outs may make internet use for such purposes impractical in some rural areas. A submission to the Estens Inquiry by the Victorian Farmers Federation (VFF) (2002) argued that “internet access is now essential for the day-to-day business activities of many farmers … hence a fast and uninterrupted landline data service is essential”. However, the VFF also noted that “internet speed and continuity in rural areas is greatly inferior … the speed of 64 kb/s … is simply a dream for those in this rural area”.


21

3.3.3 Low population density

Low population density can undermine the economic viability of investment in telecommunications infrastructure, as there may not be enough customers in an area to justify commercial investment. For example, there would be little commercial justification for a telecommunications service provider to lay HFC cable in a street to enable access to cable broadband if the street was not densely populated, and/or if there was little demand for such a service. Investors require adequate returns on their investment, and demand for their service or product must be high in order to provide for this.

3.3.4 Lack of economies of scale

Technical constraints and low population density also constrain the development of economies of scale in rural and regional telecommunications which can, under some circumstances, undermine availability. Economy of scale is the concept that, as the amount produced of a particular good or service increases, the average cost of producing each unit decreases. This concept is explained more fully in Section 4.3.2. The relevance of economies of scale to availability is that if costs are so high that consumers are not willing or able to pay, then services may not be provided.

3.3.5 Demographic and business characteristics

It is not just the number of households and businesses that determine likely demand for a service from an area – the demographic characteristics of those households and businesses are also an important determinant of demand. Such characteristics can also affect the decision of commercial suppliers to provide a service. There is evidence that people with particular demographic characteristics (most notably relating to age, income, education) are more likely to demand certain telecommunication services, such as mobile phones and broadband internet. The same evidence applies to businesses of particular sizes and from particular sectors. Areas without what are considered favourable demographic characteristics may miss out on services, even though other areas with smaller populations or lower population density may be covered.

3.3.6 Low prices

While low prices are generally considered desirable for customers, they can have undesirable consequences when prices fall too low relative to the cost structure facing providers. Private investment is attracted by the promise of a reasonable rate of return upon that investment, generally at or above that which is available elsewhere in an economy. If the promise of an adequate rate of return is not perceived in an industry, then investment in that industry will be less. In the telecommunications industry, lower investment can result in reduced infrastructure and availability. Prices falling too low relative to cost structure tend to occur through either competitive pressure, or through government pricing control or regulation, such as uniform pricing requirements.

Discussion Paper

22

Foros and Kind (2003) argue that a regulatory environment that requires uniform pricing, such as a universal service obligation, can actually harm rural and regional availability when competition determines what the uniform price should be. They suggest that it is not competition or a uniform pricing policy that is problematic. Rather, it is the two in combination that can undermine regional availability. When there is a requirement of geographically uniform pricing, competition in metropolitan segments of markets has the effect of forcing prices down everywhere. Foros and Kind (2003) argue that this can reduce regional availability due to the greater cost involved in serving rural areas.

3.3.7 Regulatory burden and regulatory risk

Many regulatory bodies govern the telecommunications industry, fulfilling the important role of providing a framework within which telecommunications companies must operate. However, an undesirable or unintended consequence of regulation can, in some circumstances, be reduced availability.

This can occur when the direct costs involved in abiding by regulations confronting new or incumbent providers are high, and so reduce levels of participation. When this occurs, competition may be reduced, prices may be raised, or availability may be undermined. For example, legislation which requires telecommunication service providers to meet particular customer service standards, or that seeks to protect consumers from the actions of telecommunications companies, may be difficult and/or expensive for telecommunications companies to comply with. The expense involved in complying with regulatory requirements may discourage new service providers, especially smaller ones, from entering the market, and may burden companies already in the marketplace so that they exit the market. In both cases, the outcome is that availability is compromised.

Furthermore, the possibility of changes to the regulatory environment in the future may undermine investment today. The regulatory environment can change after a firm enters a market, sometimes with only limited (in terms of business operations) prior warning. Changes to regulatory structures, while often having worthy social objectives, may make companies that were previously profitable become economically unviable, while business uncertainty about future changes could deter some prospective entrants to the market. Existing providers could also be deterred from additional investment due to the possibility of regulatory changes, as they may not want to initiate major capital expenditure that may be unprofitable when new regulations are introduced.

Regulatory burden

Regulatory risk

Question 5 What factors constrain investment in technologies that would increase the availability of telecommunications services to businesses in rural and regional Victoria?

Question 6 Are there any examples of where regulatory burden or regulatory risk has influenced investment decisions in the telecommunication markets in rural and regional Victoria?


23

4 Issues for review 2 – Price Many of the availability issues introduced in Chapter 3, such as population density and economies of scale, are also relevant to price. In fact, many constraints to greater availability are also constraints on reducing prices. For example, low population density and a lack of economies of scale in rural and regional areas tend to make the cost of services to customers more expensive. To the extent that customers from an area are unable or unwilling to pay a higher price, the likelihood of service availability in that area is undermined.

4.1 The importance of prices

The issue of price is potentially important to businesses in two ways: • to the extent that business pays the prices and uses the service, business

profitability can be undermined by higher prices. This can have flow on impacts upon business growth, wages and employment;

• to the extent that business is not willing or able to pay the price for the service, high prices can undermine adoption.

It is likely that firms are willing to pay higher prices for services that are critical to their business. When demand for a service does not vary greatly as price changes, the good or service is said to demonstrate low price sensitivity.5

However, firms may resist paying higher prices for services that are more discretionary, so that demand will vary greatly as prices change. When this occurs, the service is said to demonstrate high price sensitivity.

There has been a great deal of research into the price sensitivity of different telecommunication products (e.g. Vodafone, 2003; Rappoport et al. 2002; Duffy-Deno, 2003) and generally fixed line telephone service demonstrates extremely low price sensitivities. That is, people’s demand for a fixed line service is largely independent of price changes. Mobile phone demand appears to be more price sensitive, while evidence for internet and broadband price sensitivity is still emerging and is somewhat less conclusive.

Recent research from the United States has found that household demand for broadband is quite sensitive to price (Rappoport, et al. 2002), while Duffy-Deno (2003) recently found that sensitivity to price for business broadband differed substantially across businesses of different sizes, with small businesses exhibiting greatest sensitivity to price. Despite this, there is little information on the price sensitivity of broadband end-users, particularly for Australian business customers.

Question 7 How does demand for different telecommunication

services vary according to price?

5 The sensitivity of demand to price is also known as the elasticity of demand.

Undermines profitability

Undermines adoption

Low price sensitivity

High price sensitivity

Price sensitivities for different services vary

Discussion Paper

24

4.2 Service prices in rural and regional Victoria

Service prices for standard telephone services are essentially the same across Australia, regardless of location. This is guaranteed by the Federal Government’s USO, which ensures that losses that result from supplying loss-making services in the course of fulfilling the USO are to be shared among carriers (Australian Communications Authority, 2003). As a result of the USO, the cost per call of the same type does not vary.

However, users in rural and regional locations may have different call patterns to metropolitan users, such as a greater proportion of long distance calls. This is due in part to the spatial boundaries that determine whether a call is local. This boundary is the entire metropolitan area for metropolitan users yet often only the local area for rural and regional users. As a result, rural and regional users may face higher phone bills for the same number of phone calls.

In addition, the USO only applies to call costs. It does not prevent charges for connecting a new service from being higher than the standard connection fee of $209. For those in isolated areas where there is no readily accessible telephone network infrastructure, Telstra may elect to extend its network at the customer’s expense. The cost to the consumer for this network extension charge is capped at $1,540.

The Productivity Commission (2000) concluded that average line costs in low density areas of Australia (less than about two lines per square kilometre) are between six and ten times the average line costs for the rest of Australia.

For those in rural Victoria requiring satellite mobile phones, the expense is significantly more than for terrestrial mobile phone services. This applies to both handsets and call charges.

Since 2000, there has been universal access to a number of ISPs at untimed local call rates across Australia, and at metropolitan equivalent ISP charges. According to the Estens Inquiry, competition between national providers has driven down prices charged by ISPs located in regions, and rural and regional consumers are said to have benefited accordingly (Department of Communications, Information Technology and the Arts, 2002).

Broadband providers in Australia are largely free to determine their own prices. This enables providers to set prices at levels that enable them to meet the often-significant costs of providing services, as well as obtain an adequate rate of return upon their investment comparable to what can be made in other sectors of the economy.

In rural and regional areas with cable or DSL coverage, broadband prices are comparable to those offered in metropolitan areas. However, in areas where satellite is the only broadband option consumers face significantly greater expense. For example, a 2-Way satellite broadband plan offered by Telstra Bigpond6 costs $450 a

6 2-Way Satellite Business Plus – April 2004. Up to 512kpbps, with 3 GB monthly usage allowance.

http://www.bigpond.net/internet-plans/broadband/satellite/2way/businessplus

Fixed line telephones

Mobile phones

Internet

Broadband


25

month, with installation fees ranging from $399 to $999 (remote users tend to have higher installation costs). By comparison, equivalent ADSL connections (in terms of speed and download limits) are widely available for between $60 and $100 a month, with installation costs generally between $150 and $300. 1-Way satellite broadband plans tend to be cheaper, though users also need to maintain a land-based connection to transmit uploads.

Question 8 How have higher access and/or service prices affected

telecommunications choices and the competitiveness of businesses in rural and regional Victoria?

4.3 Potential reasons for price differentials

4.3.1 Infrastructure per capita requirements in areas of low population density

Telecommunications infrastructures are networks. They are a collection of interconnected parts. Per capita, more infrastructure is needed in order for areas of low population density to become part of the network. For this reason, it is often more expensive to connect people to services in areas with low population density. This raises a concern that communities in remote locations will be excluded from accessing telecommunication services that communities in more populated regions enjoy.

4.3.2 Lack of economies of scale in rural and regional areas

Economies of scale exist where the average cost of producing each unit of a particular good or service decreases as the amount produced increases. The importance of economies of scale is clear – a company producing 100 units would find it difficult to compete on price with a company producing 300 units. When an economy of scale exists, bigger is better, but often with negative consequences for competition and innovation (discussed in Chapter 5).

Economies of scale commonly exist in telecommunications because network infrastructure is expensive. When the cost of infrastructure is spread over more people, the average cost for those individuals is reduced. As there are often fewer customers in rural and regional areas, economies of scale will exist but they will be less than for customers in metropolitan areas.

A lack of economies of scale may play an important role in the provision and price of telecommunication services in rural Victoria. As population density is less in rural areas, telecommunications companies may not be able to achieve economies of scale, because they may not be able to sell enough units to minimise the cost per unit. For example, this may mean that the cost per customer for an Internet Service Provider (ISP) in rural areas with 50 customers will be higher than the cost per customer for an ISP in a metropolitan area with 5000 customers.

Discussion Paper

26

Question 9 How could economies of scale be established in rural

areas?

4.3.3 Lack of competitive markets

Monopoly or oligopoly providers do not face the same competitive pressure on prices that providers in competitive markets face, so that prices will tend to be higher where competition is lacking. Section 5.1 discusses how competition tends to drive prices down.

Question 10 What prevents telecommunication prices in rural and

regional Victoria from being lower?


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5 Issues for review 3 – Competition This section discusses why competition in telecommunications is important. It considers the potential impacts of a lack of competition, such as high prices and poor service quality, and also considers what can be gained through more competition.

Competitive markets generally provide consumers with lower prices and a higher quality and range of services. Therefore, the question “How competitive is the telecommunications market in rural and regional Victoria?” is pertinent in the context of this discussion.

Question 11 Can, or has, competition delivered outcomes to meet rural

and regional telecommunication needs?

Levels of competition are often taken to be analogous to the number of participants in a market. Accepting this definition, a monopoly situation (where there is only one seller) is the lowest level of competition, a duopoly (where there are two sellers) is the next lowest, an oligopoly (where just a few sellers dominate the market) the next lowest, etc.

While it is true that a market with more participants is more likely to be more competitive, this is not necessarily the case. Even markets with few participants can be quite competitive under certain conditions, while markets with many participants can be highly uncompetitive. Therefore, the answer to the question ‘how competitive are the telecommunications markets of rural and regional Victoria?’ cannot be answered simply by reference to the number of participants in the market. Often there are more fundamental characteristics that determine the competitiveness of markets.

To understand how competitive rural and regional Victorian telecommunications markets are, it is important to understand the characteristics of competitive markets.

5.1 Characteristics of competitive markets

5.1.1 Few barriers to entry or exit

A barrier to entry or exit is anything which prevents a firm from free and timely movement into or out of a market. Barriers to entry are often technical or regulatory in nature. For example, a technical barrier to entry to the telecommunications market may be the initial infrastructure costs needed to install telephone lines in a particular region, or the installation costs for a wireless broadband base station. An example of a regulatory barrier to entry may be delays incurred when installing a mobile phone tower as a result of government planning and approval processes.

The importance of competition

Understanding what is meant by ‘competition’

Discussion Paper

28

An example of a technical barrier to exit is the costs of removing infrastructure (such as mobile phone towers) and restoring sites to their former condition, both of which may be a costly exercise. An example of a regulatory barrier to exit may be a government regulation that requires a telecommunications carrier to give its customers notice for a minimum period before withdrawing its services. A barrier to exit creates the risk of sunk costs for telecommunications providers – costs that cannot be recovered if the venture fails – and so may deter entry to the market.

Minimal barriers to entry and exit are important to competitive markets, as markets can remain competitive even where there are few active participants. A sole supplier of a telecommunication service in a market with no barriers to entry still faces competitive pressure. This is because competitors are likely to enter the market and undercut the existing supplier as soon as profit margins become attractive, a process facilitated by minimal barriers to entry. The sole supplier therefore faces pressure from potential entrants to the market, and so may choose to keep prices down. This is how the threat of market competition can keep prices down in a similar way to actual market competition between many players. However, the threat of competition is only credible when there are few barriers to entry.

Question 12 Are there barriers of entry or exit to the

telecommunications markets? What impact does this have on telecommunications infrastructure investment in rural and regional Victoria?

5.1.2 Market participants as price takers, not price setters

The second main attribute of competitive markets is that market participants are price takers, not price setters. This means that individual buyers or sellers of a good or service are forced to take the price offered by the market, and have no individual influence on the price. The ability of an individual or firm to influence market price defines the firm’s market power.

To illustrate this important concept, consider the example of a (hypothetically) competitive telecommunications market, where neither the individual consumers (the buyers) nor the individual providers (the sellers) of the service are able to influence the service price. The price of the service is determined by the market as a whole – the market price – at a price where the users’ level of demand for broadband equals the level that suppliers are willing to supply for that price.

The only decision the seller faces in a competitive market is how much to sell at the market price, while the only decision the buyer faces is how much to buy at the market price. Any one seller trying to charge more than the market price will not be able to find a buyer (for all the buyers will be buying from sellers offering lower prices), while any consumer offering less than the market price will not be able to find a seller (for all sellers will be selling to other consumers who are willing to pay the market price). Market participants are forced to accept the market price as they have no market power.


29

Conversely, a monopolist can freely raise and lower prices, as well as decide how much to sell. In fact, price and supply are closely related – by withholding supply, the monopolist can manipulate prices to maximise profits.

Question 13 To what extent are buyers and sellers in the

telecommunications markets of rural and regional Victoria price setters or price takers?

5.1.3 High levels of innovation

Innovation refers to the development of new methods, technologies and ideas. Innovation is not a prerequisite of a competitive market. Rather, it is generally the result of competitive markets. In a competitive market, innovation allows a company to gain an advantage over its competition, and therefore achieve greater rewards until the competition catches up. The constant drive to get an edge over the competition provides an ongoing motivation for innovation that is often lacking in monopoly markets.

Some innovation will happen in any case in the telecommunication sector due to technological developments in competitive markets overseas, but local competition can provide additional stimulus.

There are numerous examples of government, non-government and business entities in rural and regional Victoria developing innovative solutions to overcome technological limitations in telecommunications services. For example, in the Wodonga region of Victoria’s North East, a combination of CDMA and wi-max technology is being planned to deliver voice and broadband data services. According to Davidson (2004), wi-max is an emerging standard for wireless broadband connections that can offer speeds of up to 70mbps to customers up to 50 kilometres from the base station. Once operational, this technology promises to completely bypass fixed line infrastructure, including the local loop.

Another example of innovation is evident in the Loddon Mallee region of Victoria’s North West, where the Loddon Mallee Health Alliance is currently building a broadband network for its activities across towns in its region. This infrastructure, which makes use of an innovative ADSL product that can potentially extend the range of ADSL up to 27 km radial distance from the telephone exchange (compared to the current 4 km), promises to greatly extend the availability of ADSL broadband in the area.

Question 14 To what extent is the development of key innovations

evident in the telecommunication markets of rural and regional Victoria?

Question 15 Are there barriers to innovation and the implementation of

new technologies in rural and regional Victoria? How could these barriers be overcome?

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30

5.1.4 Numbers of participants

As discussed, the number of participants in a market is not the ideal measure of how competitive a market is, especially when used as the sole indicator. However, it is still a useful measure when used in conjunction with other indicators, and it is a measure that is readily obtained through existing data.

The Besley Inquiry (Department of Communications, Information Technology and the Arts, 2000) observed that there have been continuing reductions in Telstra’s share of a range of telecommunication market segments. The inquiry noted how the growth of competitive pressures varies significantly between regions and customer segments. It also noted that infrastructure competition in regional, rural and remote Australia remains in its infancy, and a number of new players have only recently launched their services.

The rapid growth of demand for telecommunications services, particularly data and mobile services, provides increasing opportunities for potential suppliers to enter markets. In particular, demand growth raises the prospect that markets which were once capable of sustaining only one provider may become capable of supporting multiple suppliers. Demand growth can also stimulate investment in technologies and services which may previously have been uncommercial. Similarly, service innovation can stimulate demand. As residential, business and government customers increasingly demand diverse services and products, new opportunities may arise for competitors to provide for niche markets not met by incumbent suppliers. In fact, as demand diversifies and technological possibilities develop to meet demand, it is increasingly likely that multiple providers will be needed to understand and meet demand across all regions.

The Besley Inquiry (Department of Communications, Information Technology and the Arts, 2000) concluded that, following the introduction of open competition in telecommunications, there is evidence that competitive entry and the benefits of competition are spreading, both geographically and across specific markets. Although there is a long way to go, an increasing number of new carriers and service providers are focusing on niche markets, including new services in some rural and regional areas. Together with the Australian Competition and Consumer Commission’s (ACCC) decision to declare unconditioned local loop services7 under the access regime, the high rate of entry into some rural and regional markets has been a major contributor to the growth in issues of new carrier licences.

Question 16 What has been the impact of open competition in

telecommunications on businesses in rural and regional Victoria?

7 Unconditioned Local Loop services involve the use of unconditioned cable (generally copper)

between end-users (e.g. households or businesses) and a telephone exchange.

Evidence of increasing numbers of suppliers

Demand growth and differentiation

Impact of key regulatory developments


31

5.2 Impediments to competition

While the model of competitive markets presented here may assist understanding of competition and its impact upon prices and service quality, it is a model that is rarely observed in reality. There exist many possible impediments to competition in real world markets, and the telecommunication markets of rural and regional Victoria are no exception.

5.2.1 Natural monopoly characteristics of some telecommunications infrastructure

A natural monopoly is a situation where investment in an area is only viable if it is provided by one entity. A natural monopoly exists when costs would be higher with many providers than with a sole monopoly provider. Telephone lines are often described as having the characteristics of a natural monopoly, as it is rarely viable to have competing companies providing multiple telephone lines down the same street. Natural monopolies are most likely to occur in industries where economies of scale are most significant (that is, where the average cost of providing services to many customers is substantially less than providing services to a few customers), and where there are significant infrastructure costs required before a provider can enter the market. Natural monopolies in the telecommunication industry are gradually diminishing in some urban areas as alternatives become available (eg dual cabling, wireless connections), but they are still predominant in rural areas.

5.2.2 Legacy of historical public monopoly

The natural monopoly characteristics of certain goods and services are not the only factors that can lead to the occurrence of real world monopoly providers. In many cases, government policy has supported the creation and maintenance of monopolies. Historically, competition has not existed in many telecommunications markets due to government ownership of infrastructure and government provision of services.

Historically, as noted in Section 2.1, this has been the case with telecommunications markets in Australia and Victoria. Telecom (Australia) and the Postmaster General’s Office (Victoria) were both examples of public monopolies. These public monopolies guaranteed a single supplier serving all local markets in the state (in the case of the Postmaster General), and indeed the whole nation (in the case of Telecom). While these monopolies were justified at the time on grounds of equity, and with the aim of extending telecommunications infrastructure as widely and as quickly as possible, by the 1980s many analysts argued that these kinds of monopolies were inefficient.

Although partial privatisation has since been implemented in much of the telecommunications industry, the legacy of the historical public monopoly remains, in the form of a dominant incumbent provider that has retained some of its historical monopoly powers. The interaction between historic incumbency and the constraints

History of a public monopoly provider in Victoria

The legacy of the public monopoly

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32

mentioned in Section 3.3 (technical constraints, low population density and economies of scale) has a significant effect on potential competition.

5.2.3 Low demand density

The argument concerning the relationship of low demand density to natural monopolies has been discussed above, and relates to demand rather than supply. A low level of demand in an area may mean that only one provider could be supported by the prospective market.

5.2.4 Existence of large vertically or horizontally integrated firms and their ability to cross subsidise

Cross subsidisation typically refers to situations where a firm subsidises its services in a highly competitive market (e.g. mobile phone services at a retail level, or retail broadband internet) through redirection of excess profits from services in less competitive markets (e.g. fixed line telephone infrastructure), with the aim of deterring competition in otherwise competitive markets.

An extreme case is known as predatory pricing where prices are temporarily lowered to eliminate competition, but then raised once the competition has gone. While this appears to be good for consumers in the short term, it often has negative effects in the medium or long term once competition has been eliminated.

Question 17 What are the major impediments to more competitive

telecommunication markets in rural and regional Victoria? How could these impediments be overcome?

Cross subsidisation

Predatory pricing


33

6 Issues for review 4 – Role of government

6.1 Historical role of government in rural and regional Victorian telecommunications

Historically, communication services have been regarded as the exclusive responsibility of government. Early telecommunications networks in Australia were owned and run by the colonies, and operated in conjunction with the postal service.

Following the Australian Federation in 1901, ownership and control of all colonial services were transferred to the Commonwealth. According to the ABS (2001, p.2), communication services were widely regarded as “the right of all Australians” and “government control was seen as the only way to ensure equity”. The Postmaster-General (PMG) was given the responsibility of overseeing all domestic telecommunications and postal correspondence. In 1946, the Overseas Telecommunications Commission (OTC) was formed to govern international telecommunications (Caslon, 2003).

By 1975 it had become clear that telecommunications had grown into a large and important industry in its own right (ABS, 2001). A resulting restructure of the telecommunications industry in 1975 saw the establishment of the Australian Telecommunication Commission (Telecom Australia), responsible for public domestic telecommunications services, with PMG becoming responsible for the postal service only, and with OTC retaining its original role. AUSSAT, a publicly owned carrier in charge of the domestic satellite system, was established in 1981 (Caslon, 2003).

Further restructuring in the telecommunication industry in the 80s and 90s, saw the creation of AUSTEL to undertake the regulatory functions of Telecom, the merging of the OTC and Telecom Australia to form Telstra, the introduction of competition into the market in the form of OPTUS, and the licensing of three mobile phone service operators.

In 1997, full competition was initiated, and entry into the telecommunications market was opened up via the Telecommunications Act 1997 (Commonwealth Department of Communications, Information Technology and the Arts, 2002).

The Commonwealth Government has primary responsibility for the regulation and development of communications infrastructure. This is undertaken through several Commonwealth agencies, most notably: • ACA Australian Communications Authority (ACA) – responsible specifically for

telecommunications and radiocommunications. • Australian Competition and Consumer Commission (ACCC) – has

responsibilities derived from the Trade Practices Act 1974 and other telecommunications-specific legislation, with competition and trade practices responsibilities in relation to the telecommunications industry.

Colonial settlement

Federation to the 1950s

Separation of telecommunications from postal services

1991 - Telstra – Optus duopoly

1997 - Full competition

Contemporary responsibilities

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• Telecommunications Industry Ombudsman (TIO) - An industry-funded independent dispute resolution service, for consumers unable to resolve complaints with their telecommunications carrier or carriage service provider.

State governments have an important role to play in the development of telecommunications infrastructure in rural areas by facilitating efficient markets and attracting investment. In particular, their intimate knowledge of state rural and regional areas puts state governments in a unique position to collaborate and cooperate with the Commonwealth, as discussed by Multimedia Victoria (2002b). The way they can do this is discussed in Section 6.2.

6.2 Options for government

An issue of major importance to rural and regional Victoria is how telecommunications markets offering contemporary services at competitive prices can be extended to as many businesses in rural and regional Victoria as possible. While government no longer has a direct role in the provision of telecommunications services, various levels of government still have an important role to play in facilitating efficient and fair market operations. This section identifies the benefits and costs of a range of potential policy options available to a State Government wishing to stimulate greater investment in telecommunications infrastructure in rural and regional Victoria.

6.2.1 Regulatory opportunities

Regulations are introduced to compel businesses or people to act in a certain way. Unlike options for government intervention which seek to influence decisions, regulations offer business and people no choice but to comply with those regulations. Through regulation, a prescribed activity either becomes compulsory or illegal. Some examples of telecommunications regulations include: • price controls (such as uniform pricing requirements, and restrictions on

wholesale prices deemed to be ‘anti competitive’ for competing retailers); • access regulations (forcing one business to allow other businesses access to their

infrastructure, often to their competitors); • allocation and protection of spectrum rights (breaking up and allocating radio

spectrum rights to business for specified uses, and protecting those rights through regulation); and

• service standards regulations (guaranteeing a certain minimum level of service standard for consumers).

Most telecommunications regulation in Australia is undertaken at a national level by the ACA and ACCC, rather than at a state level (such as by the Victorian Essential Services Commission). However, the Commonwealth Government has an interest in telecommunications services in rural areas across Australia, so that state governments are in a position to influence outcomes. The Victorian State Government is well placed to monitor telecommunication services in rural Victoria due to its deep connections there, which can be supplemented by analysis and research. It can then


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bring issues to the attention of the Commonwealth Government and the ACCC, pursuing them through whichever channels it judges most effective.

Excessive or inappropriate regulation can lead to exploitation of monopoly power, lack of innovation, and predatory actions against actual or potential competitors. The State Government can gather information from its contacts in rural Victoria, public comments and complaints, and analysis informed by national and international comparisons on the extent to which regulation is having a negative impact on access to telecommunications services in rural and regional Victoria.

Question 18 What effect does the current regulatory environment have

on telecommunication markets in rural and regional Victoria?

Question 19 What regulatory changes could be made, if any, to

facilitate further development of rural and regional Victorian telecommunication markets?

6.2.2 Structural reform of industry

The forced restructuring of companies (e.g. a demerger) can be used to break up monopolies or eliminate cross subsidisation. Once again, this is an action likely to be taken at the national level in Australia by the ACCC, but the State Government could, for example, commission research and make a case for commercial restructuring to promote a more competitive wholesale market – through breaking up monopolies, eliminating cross subsidisation and/or improving incentives for granting third party access.

6.2.3 Subsidies and taxes

A tax or a subsidy aims at influencing the activities of private companies by changing the financial environment in which decisions are made (e.g. a tax on telephone calls in urban areas, or on other things, to fund a subsidy for an extension to the broadband network in remote areas which would otherwise not be commercially feasible). In effect, the USO depends on government intervention of this type to keep telephone prices lower in rural and regional areas than they otherwise would be.

A State Government may wish to consider whether the wider benefits, beside those which are covered by the price paid by users, are great enough to justify the subsidy. A degree of commercial discipline can be maintained by offering matching expenditure (e.g. $1 of state government expenditure for every $3 or $2 of company expenditure). This would have, for example, the effect of extending the broadband network further or sooner than would happen otherwise (eg into smaller rural towns). However, care is needed to avoid subsidising investments which private companies would have undertaken anyway.

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6.2.4 Provision of information to consumers or potential investors

By providing information to consumers, government can enable people to make more informed decisions. An example is the publicity (through the Victorian regulator) for retail contestability in electricity distribution. Such publicity can encourage consumers who have not previously had reason to consider an issue, and who may not feel technically competent to judge the merit and accuracy of advertising material. Government information can also help increase the number of potential customers in an area for a broadband service being considered by a new competitor.

Government can also encourage investment by providing information to potential investors, such as market information or demand aggregation studies. Government can apply leverage using other rural and regional activities it undertakes and regional analyses it has done or has commissioned, to develop (or commission development of) information that would be useful to telecom investors, but which they may have considered too expensive or challenging to do themselves.

6.2.5 Strategic use of purchasing power

The State Government is the biggest purchaser of telecommunications services in Victoria. Although its purchases are a small share of the total, its custom, and the threat of moving all or some of it to a rival, may be enough to influence rural telecom investment decisions. For example, during periodic negotiations of its communications service contracts, government can press providers to undertake further investment in parts of rural Victoria. Such investments are not necessarily uneconomic – they may merely have been overlooked or not reviewed for some time. Duffy-Deno (2003) explains how this approach has been used to extend the reach of broadband in Arizona, where aggregation of government demand for broadband has been used to entice service providers into regions.

6.2.6 Demand aggregation

In addition to aggregating its own demand to entice service providers, the State Government, through its close knowledge of developments throughout Victoria, could identify potential groups of customers whose combined demand would justify new broadband connections. In principle, telecommunication customers have the incentive to do the same thing, but their available resources may not be sufficient to enable identification of new opportunities.

6.2.7 Demonstration projects

The State Government can also support projects that demonstrate the technical and commercial feasibility of investments that potential competitor telecommunication companies may have overlooked, such as new types of customer connections that bypass the local loop of monopoly phone line connection (e.g. emerging wireless broadband options). The Victorian Government is currently doing this with respect to broadband technologies through the CAN demonstration program.

Advertising, publicity of issues

Information to investors


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6.2.8 Use of government infrastructure

The State Government is a major owner of infrastructure in Victoria, some of which can be used to increase telecommunication competition and expand the broadband network. An example is VicTrack, which has worked with telecommunication companies to use long rail corridors for broadband cable connections to rural Victoria. Another example is the use of government buildings for mobile phone towers.

Question 20 Outside of the regulatory environment, what actions

should the State Government take to improve access to telecommunications services for businesses in rural and regional Victoria?

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References ACIL Tasman, 2004, Spend/Demand: Telecommunications in Regional and Rural Victoria, Report

prepared for Multimedia Victoria, Melbourne. Allied Business Intelligence, 2001, Without Fixed Wireless There Will Be No Broadband Revolution,

Allied Business Intelligence, Oyster Bay, New York. Australian Bureau of Statistics (ABS), 2001, Year Book Australia – 2001 Special Article – History of

Communications in Australia, Australian Bureau of Statistics, Canberra. Australian Communications Authority, Telecommunications Performance Report, 2003a, 2002-

03, www.aca.gov.au/aca_home/publications/reports/reports/performance/index.htm; Australian Communications Authority (ACA), 2003b, Your rights to a telephone service - the universal

service obligation, Consumer Fact Sheet, Accessed 24 March http://www.aca.gov.au/consumer_info/fact_sheets/consumer_fact_sheets/fsc08.htm

BIS Shrapnel, 2001, Telecommunications Infrastructure in Australia 2001, A research report prepared for the ACCC, Canberra.

Broadband Advisory Group, 2003, Australia’s Broadband Connectivity, The Broadband Advisory Group’s Report to Government, Commonwealth of Australia, Canberra.

Caslon Analytics – Accessed 19th March, Last updated Dec 2003, http://www.caslon.com.au/austelecomsprofile1.htm

City of Greater Shepparton, 2002, Submission to the Regional Telecommunications Inquiry. Davidson, J, 2004, ‘Wi-max bypasses Telstra's copper link in the bush’, Australian Financial Review,

13 May 2003. Department of Communications, Information Technology and the Arts, 2000, Connecting

Australia: Report of the Telecommunications Service Enquiry, Commonwealth of Australia, Canberra. Department of Communications, Information Technology and the Arts, 2002, Connecting Regional

Australia: The Report Of The Regional Telecommunications Inquiry, Commonwealth of Australia, Canberra.

Department of Communications, Information Technology and the Arts, 2004, Higher Bandwidth Incentive Scheme (HiBIS) Program Guidelines, Version 1 (further draft for comment), Canberra.

Duffy-Deno, K. T. 2003, ‘Business Demand for Broadband Access Capacity’, Journal of Regulatory Economics, 24, 3, pp. 359-372.

Eastern Region Area Consultative Committee, 2002, Submission to the Regional Telecommunications Inquiry.

Florida Public Service Office of Market Monitoring and Strategic Analysis, 2002, Broadband Services in the United States: an Analysis of Availability and Demand, Florida Public Service Office of Market Monitoring and Strategic Analysis, Miami.

Foros, O; Kind, H.J. ‘2003, ‘The broadband access market: Competition, Uniform Pricing and Geographical Coverage’, Journal of Regulatory Economics, 23, 3, pp 215-235.

Klinkenborg, V. 2004, ‘Taking Broadband Internet Access to the Last ‘Last Mile’: To Rural America’, Editorial Observer, NYTimes.com , March 24, 2004.

Markus, , 1990, “Toward a ‘Critical Mass’ Theory of Interactive Media,” in Jane Fulk and Charles Steinfeld, Organizations and Communication Technology. Newbury Park, California: Sage Publications.

Multimedia Victoria, 2002 a, Connecting Victoria: A Progress Report 1999–2002, Multimedia Victoria, Department of Innovation, Industry and Regional Development, Melbourne.

Multimedia Victoria, 2002 b, Regional Connections: A Better State of Telecommunications, Multimedia Victoria, Melbourne.

OECD, 2001, The Development of Broadband Access in OECD Countries, Working Party on Telecommunication and Information Services Policies, OECD, Paris.


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OECD, 2003, ICCP Broadband Update, Committee for Information, Computer and Communications Policy, OECD, Paris.

Ofcom, 2004, The Ofcom Internet and Broadband Update, January 2004, www.ofcom.org.uk/research/consumer_audience_research/139330/InternetandBroadband.pdf

Pacific Internet, 2003, The Broadband Barometer, January 2004, Survey conducted by ACNielsen.consult for Pacific Internet, Melbourne.

Prieger, J., 2003, ‘The Supply Side of the Digital Divide: is there Equal Availability in the Broadband Internet Access Market?’, Economic Inquiry, Apr. 2003, pp. 346-363.

Productivity Commission, 2000, Population Distribution and Telecommunications Costs, Staff Research Paper, Productivity Commission, Canberra.

Rappoport, P., Kridel, D.J., Taylor, L.D. & Alleman, J. 2002, ‘Residential Demand for Access to the Internet’, International Handbook of Telecommunication Economics Volume II, ed Gary Madden, Edward Elgar, U.K

Sullivan, B. ‘Ubiquitous Broadband is Coming, but When and How?’, Communications Today, 2001, vol.7, p 1.

Victorian Farmers’ Federation (Midlands Branch), 2002, Submission to the Regional Telecommunications Inquiry.

Vodafone, 2003, Review of Price Elasticities of demand for fixed line and mobile telecommunication services, Report for the New Zealand Commerce Commission’s consideration of the allocation of the costs of the Telecommunications Service Obligation (TSO), Vodafone, New Zealand.

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Glossary Unless otherwise specified, definitions sourced from the Department of Communications, Information Technology and the Arts (2000 & 2002)

ACA - Australian Communications Authority - Commonwealth regulatory authority responsible for telecommunications and radiocommunications.

ACCC - Australian Competition and Consumer Commission - Commonwealth regulatory body with responsibilities derived from the Trade Practices Act 1974 and other telecommunications-specific legislation, with competition and trade practices responsibilities in relation to the telecommunications industry.

ADSL - Asymmetrical Digital Subscriber Line - A compressions technology for transmitting combinations of services (voice, data and one-way full motion video) at high speeds over existing copper feeder, distribution and subscriber lines. ADSL is asymmetric—it uses most of the channel to transmit downstream to the user and only a small part to receive information from the user.

Backbone network - Trunk or inter-exchange network.

Bandwidth - Measure of throughput capacity of a given communications network link or transmission protocol.

Broadband - A communications technique using high frequency transmission over a coaxial cable or optical fibres. It can transmit large amounts of data, voice or video over long distances. There is no clear-cut definition of what broadband is in the literature, with a number of definitions, albeit similar, in circulation. In their 2001 analysis of broadband implementation in member countries, the OECD uses a downstream access threshold of 256 Kbps on the grounds that this is the most basic speed being offered by DSL providers in OECD countries. In applying this definition, lower upstream access rates are also incorporated, thus encompassing all broadband deployment (OECD 2001).

CAN - Customer Access Network - The network sometimes referred to as the ‘local loop’ consisting of the customer telephone attached to a local area switch which is mainly comprised of copper cable but may use wireless or satellite technologies.

CDMA - Code Division Multiple Access - A sophisticated spread spectrum technique that can be used in a variety of wireless delivered services, including mobile phones where it is popular in rural areas. CDMA employs a bandwidth much larger than the original signal. Each signal is uniquely encoded and decoded and allows many signals to occupy the same spectrum.

CSG - Customer Service Guarantee - A set of performance requirements established by the Government and placed by the Australian Communications Authority (ACA) on suppliers of the standard telephone service. The service guarantee sets time limits and other standards for the rectification of faults, connections and appointments. Consumers are entitled to established scale compensation payments if the standards are not met.

DSL - Digital Subscriber Line - A technology that enables the copper telephone network to carry data-streams of up to 6 mbps. There is more than one DSL technology (e.g. ADSL and VDSL).

GSM - Global System for Mobile Communication - A digital cellular telecommunications standard used by many countries.


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HFC cable - Hybrid Fibre Coaxial cable - A network consisting of optical fibre on main routes, and supplemented by coaxial cable closer to the customer’s premises.

ISDN - Integrated Services Digital Network - A digital access technique, for voice and data. It is a digital alternative to an analogue public switched telephone service.

ISP - Internet Service Provider - A service provider offering Internet access to the public or another service provider.

Narrowband - A generic term commonly used to describe the data speed that can be achieved though the public switched telephone network when using a dial-up modem (e.g. 33kbps)

One-way satellite - A means of accessing the internet that uses one-way data transfer to the customer by satellite and the telephone network for the return path.

PSTN - Public Switched Telephone Network - The part of the telecommunications network which enables any customer to establish a connection for voice communication with any other customer either automatically or with operator assistance.

Satellite - A radio relay station in orbit above the Earth that receives, amplifies and redirects radiocommunications signals. There are various types, including geostationary (synchronous with the rotation of the Earth) and non-synchronous low Earth orbit and medium Earth orbit systems.

TIO - Telecommunications Industry Ombudsman - An industry-funded independent dispute resolution service established in December 1993, for consumers unable to resolve complaints with their telecommunications carrier or carriage service provider.

Two-way satellite - An always-on service with data transfer and return path both via satellite transmission.

USO - Universal Service Obligation - The obligation under the Telecommunications (Consumer Protection and Service Standards) Act 1999 to ensure that standard telephone services, payphones and prescribed carriage services are reasonably accessible to all Australians on an equitable basis, wherever they reside or carry on business.

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